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Getting Out of the Budget and Debt Morass -- By Peter Morici

Submitted by mkorbey on Mon, 10/07/2013 - 10:30

The government shutdown is proving less draconian than presidential warnings, but failing to raise the debt ceiling and default would be another matter.

So many government activities have been deemed essential by legislation or presidential order that only 15 percent of the federal government is closed. The mail is moving and air traffic controllers are keeping the planes flying. Closed national parks are an inconvenience, but at least the IRS has been furloughed from targeting conservatives for advocating reforms and other crimes against the revolution.

Still the shutdown can’t go on too long without unprocessed small business loans and mortgages dragging growth, but resolution requires the president and Tea Party to recognize the unreality of their positions.

The Affordable Care Act is seen by many as an illegitimate law. Unlike all past major social legislation, the Democrats in Congress denied Republicans any opportunity to participate in its drafting, and dragooned it through the Senate by attaching it to a budget reconciliation bill requiring no Republican votes.

Those episodes reduced the ACA to little more than a presidential edict.

To resolve the funding crisis, the president should agree to delay the individual mandate a year—just as he has done for businesses—and propose negotiations with Republicans that would make the law more universally acceptable. For its part, the Tea Party must let go of free market fantasies that we can return to the status quo ante—the old system was broken, cost 50 percent more than what the Germans pay and delivers less-effective care by most measures.

If the debt ceiling is not raised, the United States does not have to default. Taxes will be collected, and the Treasury will have 80 percent of the revenues needed to meet anticipated FY2014 commitments.

The president would have to set priorities to ensure that interest is paid. That entails spending cuts deeper than those imposed by the shutdown but hardly anything the nation cannot endure until the two sides reach broad agreement on the shape of future budgets. That requires the president and Republicans to compromise on entitlements and a growth agenda for the economy.

The president must accept some legitimate reforms that restrict citizens and health service providers from gaming Social Security, Medicaid and Medicare, and to accept some Republican suggestions for stimulating growth. Those include easing back restrictions on drilling offshore and in Alaska, and modifications to Dodd-Frank banking and other business regulations to reduce bureaucratic burdens.

Republicans must recognize a broad safety net is part of the American cultural fabric. Most everyone wants low-income Americans to have access to decent health care and some measure of income security—even if the Tea Party is correct to demand those do not reduce incentives to work.

Both sides want tax reforms but “reform” is in the eyes of the beholder. Who could not agree that everyone should pay something? And our principal competitors abroad tax both corporations and individuals much less aggressively, encouraging businesses and entrepreneurs to move wealth and good jobs abroad.

It’s high time for the Tea Party to abandon rhetoric about makers and takers and unrealistic demands about the ACA, entitlements and taxes. It’s high time the president curb his aggressive speaking tours that stir passions but do little to solve the nation’s problems back in Washington.

The framers established a separation of powers between the president and congress for a reason. It mandates tolerance and compromise so that all interests are served, however imperfectly the limits of human wisdom may provide.

Both sides need to recognize these, cool the rhetoric and make deals that move the country forward. That’s what a successful democracy demands of them.

Peter Morici, an economist and professor at the University of Maryland Robert H. Smith School of Business, is a widely published columnist.

He tweets @pmorici1.

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